Financial Statements 2018 Investment Property – Just some highlights how financial statements for entities holding investment properties are different from more general purpose financial statements. Just like financial institutions and in the past companies with building and construction activities have/had their own industry specific IFRS that cover/covered the reporting of useful information outside the general/mainstream IFRS reporting rules.
Here are the things to look at:
The layout of the profit or loss part of the Statements of Comprehensive Income is quite specific to the (investment) property industry, the profit or loss part is very similar to the layout of the internal management reporting used in many property companies. Gross to net rental income is only missing the items used internally is the reconciliation from Full capacity gross rental income, through ‘Available space for rent’ and ‘Rental discounts and other items’ to the gross rental income in the financial statements.
Then after net rental income you have the more general expenses, but also the second pillar of running a investment property business, after rental income, the trading with the investment property portfolio (‘Change in value of investment properties’, ‘Proceeds from disposals of investment properties and equity investments’ and ‘Carrying amount of investment properties and equity investments sold’).
The Other comprehensive income part of the statement is more or less in line with the general IFRS reporting rules.
Looking at the financial position (page 65) two things come to mind:
- in total assets the ‘Investment properties at fair value‘ comprise a significant part of the assets, €21,692.2M is 87.6% of total assets,
- the financing is primarily served by equity of €12,893.3M or 52.1% of total assets. Third party financing (Non-current financial liabilities €7,036.3M, Current financial liabilities €2,069.6 and bank overdrafts €224.7M) is in total €9,330.6M or (only) 37.7% of total assets.
Still debt compliance is an important item in investment property companies.
Because of the nature of the business, the differences between cost and fair value of the investment properties are not detailed in the Financial Statements. The only hint as to the amount of revaluation reserves (difference between costs and fair value) is the ‘Other consolidated reserves’ of €3,979.2M (or 16.1% of total assets and 18.3% of investment properties at fair value). It is an important and significant amount in the Financial Statements but in the industry it is accepted not not disclosure because of sensitivities towards competition.
In the Notes to the Financial Statements the note on Investment Properties is obviously significantly available (note 5.4 Investment property on page 79). Important disclosures to draw attention to are:
- names of independent property valuators and their appraisal fees (page 80),
- major investments and disposals are mentioned individually (page 81), and
- the input data for fair value calculations (page 82).
See also: The IFRS Foundation